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Household Over-Indebtedness in Northern and Southern Countries: a Macro-Perspective Jean-Michel Servet, Hadrien Saiag

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Household Over-Indebtedness in Northern and Southern Countries: a Macro-Perspective Jean-Michel Servet, Hadrien Saiag View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Archive Ouverte en Sciences de l'Information et de la Communication Household over-indebtedness in northern and southern countries: a macro-perspective Jean-Michel Servet, Hadrien Saiag To cite this version: Jean-Michel Servet, Hadrien Saiag. Household over-indebtedness in northern and southern countries: a macro-perspective. Isabelle Guérin; Solène Morvant-Roux; Magdalena Villarreal. Microfinance, debt and over-indebtedness : Juggling with money, Routledge, pp.45-66, 2013, 978-0-415-83525-1. halshs-02343502 HAL Id: halshs-02343502 https://halshs.archives-ouvertes.fr/halshs-02343502 Submitted on 2 Nov 2019 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. HOUSEHOLD OVER-INDEBTEDNESS IN NORTHERN AND SOUTHERN COUNTRIES: A MACRO-PERSPECTIVE Jean-Michel Servet and Hadrien Saiag Published as Servet J-M. and Saiag H. 2013, “Household over-indebtedness in contemporary societies : a macro-perspective”, in Guérin, I. Morvant-Roux, S. & Villarreal, M. (eds.), Microfinance, debt and over-indebtedness : Juggling with money, Routledge, pp. 45-66 (ISBN 978-0-415-83525-1) Introduction Neo-liberal policies have shaped modes of production, trade and financing for the last thirty years and the crisis of 2007-8 revealed the untenable nature of household indebtedness in the United States. Apologists of neo-liberalism are convinced that such policies enabled two decades of prosperity, following the 1973-4 crisis. The approach has become hegemonic, explicitly opposing interventionist Neo-Keynesian policies under which public and private debt drive demand for investment and consumer goods, through deficit spending and money creation. This makes it possible to anticipate demand and make it ‘effective’, because it is solvent. By contrast, neo-liberals believe deficits should be banned; for them, a balanced budget is a precondition of equitable distribution. To the extent that deficits are considered the culprits of rising prices, they favour debtors at the expense of creditors. Although neo-liberal morality (if we can call it that) opposes this type of imbalance, growing levels of household indebtedness reveal that such opposition is naive. China and India notwithstanding,1 overall growth rates were on average two times higher during the so-called ‘Keynesian’ period (the post-WWII boom from the 1950s to early 1970s) than they were during the neo-liberal years that followed2 and precarious working conditions have greatly increased. Since the 1980s, the 1 Massive government intervention in these countries has fueled growth; their governments do not comply with neo-liberal dogma. 2 Pollin (2003: 131) shows that the overall growth rate of low-income and middle-income countries (excluding China) were 5.5 per cent between 1961-80, and only 2.6 per cent during the neo-liberal era (1981-99). Growth rates per capita fell from 3.2 per cent to 0.7 per cent during the same period. 1 ‘fruits of economic growth’ have been distributed in an increasingly unequal manner. While this period has been the ‘golden age’ for financial markets,3 it could also be called the ‘calamitous years’. Unemployment rates, in particular, were much higher from 1980-2000 than 1950-60. The purpose of this chapter is to show that the rise of household debt is not unique to ‘developed’ countries. In the North, indebtedness is a well-documented fact; it has been quantified and its contribution to macroeconomic relationships has been studied. However, little data is available from the South. This could lead one to think that rising household debt is not an issue. Yet, the contributions in this volume indicate the opposite. In fact, the South is also affected by over-indebtedness. There is a growing mismatch between monetary income and cash needs, the source of debt. Our argument draws on two kinds of sources. Concerning the North, we rely primarily on the work of the French school of regulation. In the South, rising household debt has not, to our knowledge, been the object of thorough macroeconomic analysis. Nor is it measured by statistics, due to the extent of informal financial practices. In this chapter, we aim to shed light on the gap created by the slow growth of most households’ cash incomes and their growing financial needs. Therefore, we rely on official reports (mainly from the International Labour Organization, concerning remuneration and employment trends) and statistics (from World Bank, concerning growth of cash needs). This chapter is organized into three parts. The first part addresses the growing role of household indebtedness in so-called ‘developed’ countries. Around the world, debt has bolstered consumer spending, which has been affected by slow income growth and a rise in social inequality. The hegemonic role of the United States at the heart of global finance has allowed it to drain considerable resources. As a result, household debt has become linked to inflation in real estate and capital markets, leading to an ephemeral accumulation regime ‘driven by finance’ (Boyer, 2000). The second part examines the rise of indebtedness in the South. To grasp its magnitude, we revisit the process of financialization. It is based on a growing monetization of social relationships. As in the North, the slowdown of growth in workers' earnings has been accompanied by a sharp rise in social inequality. Incomes are 3Term used by the Observatoire de la Finance in Geneva. 2 evolving in a way that is incompatible with cash needs, which are growing as home consumption decreases due to urbanization; the widespread desire to imitate the consumption patterns of others due to the potential equality between individuals (see Dumont, 1976); and the rise of informality and irregular income flows. Household over-indebtedness stems from this contradiction. Finally, the third part discusses a key element of over-indebtedness: inflation. If social relations would allow it, modest inflation would be a relatively peaceful way to solve the problem of growing private and public debt in a way that favours lenders. I. Household debt in the North: the heart of an ephemeral accumulation regime To understand the rise of household indebtedness in the North, we must first reconstruct debt's role in macroeconomic dynamics. The latter have been studied in depth by the Regulation School. Between 1950-70, according to this school of mainly French economists, Northern countries experienced different forms of a single accumulation regime4 called ‘Fordism’. It was characterized by a conflictual, albeit stable compromise between capital and labor concerning the distribution of productivity gains (the Fordist wage labour nexus) resulting from the ‘rationalization’ of production. As economies were rarely open to international trade at the time, wage gains engendered an increase in effective demand. Moreover, government intervention helped support economic activity (through budget deficits and advances to the Treasury) and a relatively equitable distribution of wealth. Added to this was constant inflation, whose negative real interest rates were advantageous to borrowers. The crisis that hit in the 1970s fundamentally threatened the institutions underpinning these macroeconomic relationships: the rise of real wages collided with an opening of economies (Boyer, 2004). The institutional forms5 that provided the scaffolding of the accumulation regime were overturned. Thus, since the 1980s, governments have scaled back direct intervention in the economy: they now create institutions designed to ‘deregulate’ modes of production, trade and financing. They have provided the impetus to significantly develop 4 In the terminology of regulation theory, accumulation regimes are the result of interactions between key institutions that underpin the economic process. They last several decades, the time it takes to generate a surplus without being interrupted by a crisis that calls into question its main characteristics. 5 The term ‘institutional form’ refers to the social relations key to the regulation of economies. Regulation theory identifies five main forms: the monetary regime, the wage-labor nexus, forms of competition, state intervention and the international regime (Boyer, 2004: 39-41). 3 financial markets (particularly those dealing with public debt) and dismantle the Fordist wage labour nexus. In the North, the result has been the development of new forms of work on the margins of wage labour6 (short-term, part-time, student jobs, sub-contracting, etc.). These new forms of employment have driven down the salaries of unskilled workers and increased insecurity (due to poor benefits packages). Consequently, social inequality has skyrocketed (Feller and Stone, 2009; Picketty and Saez, 20037). Despite the escalation of social inequality caused by these changes, this new institutional arrangement has sometimes given way to macroeconomic coherence, as in the case of the United States and, to a lesser extent, the United Kingdom. This appears paradoxical,
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